Bundling by competitors and the sharing of profits
AbstractWe discuss the welfare effects of bundling two products offered by two symmetric firms. We first show that, in terms of welfare, a monopoly does better than a duopoly in which each firm sell its good and that a monopoly selling the bundle does better than if it sells the bundle and the two goods separately. We also show that the choice of the mechanism for sharing the profits, obtained from the sales of the bundle, might have dramatic positive or negative effects even when the various optional mechanisms yield equal splits. In particular, the use of the Shapley value yields the highest total and consumer surpluses and the lowest producer surplus, while the weighted Shapley value totally reverses the outcome and yields profits which are very close (over 99 pourcent) to the full monopoly profits. Hence, as in the case of bundling by a monopolist, when competitors bundle they assist each other in deterring entry. However, in addition when competitors bundle, they can implicitly cooperate via the setting of the profit sharing rule and increase their profits at the expense of customers. This issue calls for some further attention by regulators.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2005007.
Date of creation: 00 Feb 2005
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Bundling; Shapley value; weighted Shapley value; sharing of proﬁts;
Other versions of this item:
- Victor Ginsburgh & Israel Zang, 2007. "Bundling by Competitors and the Sharing of Profits," Economics Bulletin, AccessEcon, vol. 12(16), pages 1-9.
- Victor Ginsburgh & ISRAEL Zang, 2007. "Bundling by competitors and the sharing of profits," ULB Institutional Repository 2013/7280, ULB -- Universite Libre de Bruxelles.
- GINSBURGH, Victor & ZANG, Israel, . "Bundling by competitors and the sharing of profits," CORE Discussion Papers RP -2026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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- Victor Ginsburgh & ISRAEL Zang, 2003.
"The museum pass game and its value,"
ULB Institutional Repository
2013/1683, ULB -- Universite Libre de Bruxelles.
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- GINSBURGH, Victor & ZANG, Israël, 2002. "The museum pass game and its value," CORE Discussion Papers 2002041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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